Navigant Research Blog

The First American Gigafactory Probably Won’t Be from Tesla

— October 26, 2015

Over the past couple of years, Tesla Motors has received a tremendous amount of media attention for the construction of its massive Gigafactory lithium ion (Li-ion) battery production facility in Reno, Nevada. Tesla ultimately plans to produce up to 35 GWh of batteries annually at the facility, but it is still at least a year away from producing its first cell. Meanwhile, near the shore of Lake Michigan, an LG Chem factory is poised to be the first North American facility to produce more than 1 GWh of automotive Li-ion cells, likely before the end of 2016.

Construction of the LG Chem facility on the west side of Michigan began in mid-2010 with a $151 million stimulus grant from the U.S. Department of Energy and $187 million from LG. By the end of 2013, the Holland, Michigan facility had largely put early issues behind it as it began shipping cells to General Motors’ (GM’s) Brownstown, Michigan pack assembly factory. GM selected LG to replace A123 Systems as the battery supplier for the Chevrolet Spark electric vehicle (EV), and by mid-2014, LG’s plant had shipped more than 1 million cells to Brownstown.

The Holland facility is now delivering cells for the recently launched second-generation Volt, Spark, and Cadillac ELR models, and production for the new Cadillac CT6 plug-in hybrid is soon to follow. GM and LG just announced a wide-ranging partnership for the development of numerous systems and components—including the cells—for the new Bolt EV set to go on sale in late 2016. While neither GM nor LG Chem will yet confirm that the cells for the 200-mile range Bolt would be produced at the Holland facility, since the car will be assembled at GM’s Orion plant north of Detroit, the expectation is that the cells will come from Michigan rather than South Korea.

Adding Capacity

Navigant Research’s Advanced Energy Storage for Automotive Applications report projects an annual Li-ion battery capacity of 11.5 GWh for hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and battery electric vehicles (BEVs) in North America in 2017. During a recent tour of the cell production lines in LG Chem’s Holland facility, plant manager Nick Kassanos declined to go into specifics regarding the plant’s total production capacity, except to say that “We are equipped to meet the demand.” The configuration of the plant with highly automated electrode coating, pressing, drying, and assembly equipment is such that additional modules can be added to scale up capacity as needed. The existing building has room for additional growth, and the property has sufficient space for at least two more similarly sized buildings that may be added in the future as demand warrants.

While no absolute capacity figure was provided, Steve Zachar, manager of the formation section of the Holland plant, confirmed that the plant is currently shipping approximately 130,000 cells per week to the Brownstown pack factory. At approximately 96 Wh per cell for the Volt, Spark, and the soon-to-launch CT6, that amounts to nearly 650 MWh per year, a figure that is likely to climb as Volt and CT6 production ramps up. LG Chem recently also announced another undisclosed automotive customer for the Holland plant.

GM has not revealed any specifications of the Bolt EV other than a range of at least 200 miles, which is expected to require at least a 50 kWh battery pack. News media have reported that GM is planning for a production capacity of 30,000 Bolts, which would require at least 1.5 GWh of cells, a figure which, along with other new business, nearly quadruples current production and potentially brings the total annual production of LG Chem’s Holland plant to nearly 3 GWh, or approximately one-quarter of the projected North American capacity by 2017.

 

Australia Picks Up the Smart City Challenge

— October 26, 2015

Recent U.S. government support for smart cities research and the announcement of the selected cities for the Indian smart city program are just two signs of the continuing momentum behind urban innovation across the globe. Such developments only increase the pressure on other national governments and city leaders to clarify their own programs and ambitions around urban development. Australia is a good example of how that pressure is hard to avoid.

Despite being one of the most urbanized countries in the world, with around 90% of the population living in urban areas, Australian cities have played a relatively subdued role in the development of smart city ideas. However, there have been a few high spots. The Smart Grid, Smart City project in Newcastle is one notable smart grid pilot attracting global attention, but despite positive results, the follow-up has been limited. Sydney and Melbourne have also been leaders in promoting building energy reporting and energy efficiency, and a number of cities also have sustainability goals, such as the Sustainable Sydney 2030 program. However, there has been little in the way of a significant focus on the issues of urban innovation and sustainability. A recent report from the Australian Council of Learned Academies, for example, highlights the need for Australian cities to put much greater emphasis on clean and efficient mobility solutions if they are to sustain their growth and citizen expectations.

Waking Up to the Challenges

That report is among a number of signs that Australian cities and the Australian federal government are waking up to the challenges presented by globalization and climate change, as well as the opportunities offered by new forms of urban innovation. Adelaide, for example, has launched a number of initiatives including the creation of an Internet of Things (IoT) hub in association with Cisco. Melbourne has recently created a new post of Chief Digital Officer to lead its Smart City Office and has also presented its plans to become a smart city to a committee of the Australian parliament. The federal government is also taking cities more seriously. The new prime minister appointed the first Minister for Cities and the Built Environment in September, reversing the lack of focus on urban development issues shown by the current government so far.

Despite the environmental goals set by some Australian cities, the country’s record on emissions reductions remains poor compared to other developed economies.  Australia has one of the worst records for per capita climate emissions, on a par with the United States. However, whereas the United States has been making reductions in recent years, Australia has done little to mitigate its emissions. The rejection of a number of clean and efficient energy programs by the previous prime minister has not improved the situation. Australian cities have the opportunity to pick up the baton and show there is a better way forward.

 

Business, Buildings, and Tackling Climate Change

— October 23, 2015

On October 19, the White House announced expansive commitments from corporate America to continue the battle against climate change. This announcement underscores the hope for effective global policy development at the United Nations Climate Convention in Paris, or COP21, at the end of November. The signatories represent 81 companies operating in all 50 states, employing over 9 million people, and generating more than $3 trillion in annual revenue. These companies also span industries, representing a spectrum from heavy industry to high tech, as well as service businesses. An independent consortium of long-term investors has also announced a commitment to invest $1.2 billion in clean energy development.

The growing corporate commitments reflect an understanding of customer demand. Alex Gorsky, chief executive of Johnson & Johnson, explained to the Financial Times, “Just as the opinion of customers, and in our case patients, around the world are more sensitized to this issue … they are demanding more from the companies from which they purchase their products.”

The Role of Buildings

There is an opportunity to focus major efforts for climate change adaptation and mitigation in buildings. From siting renewables and clean energy to major improvements in energy efficiency (EE), better operations and use of commercial and industrial facilities can have a major impact on countries’ greenhouse gas (GHG) emissions profiles. In fact, in preparation for COP21, the UN has prioritized EE as a major mechanism to reach GHG emissions reductions goals: “According to the International Energy Agency, increasing EE accounts globally for 49% of the measures needed to achieve the emission peak and meet the +2 degrees target. EE is also relevant for sustainable economic development and offers multiple benefits including local job creation, increased productivity and competitiveness for companies, reduction of pollution, improvements in health, energy access and energy security. A significant scaling up of global investment in EE is urgently needed.”

Intelligent building solutions could be the cornerstone of EE strategy for tackling climate change. In a recent report, Navigant Research detailed how building energy management systems can provide the analytics and software tools for measuring efficiency improvements, tracking return on investment (ROI), and ensuring ongoing performance. Intelligent lighting and advanced heating, ventilation, and air conditioning (HVAC) solutions can optimize system performance and at the same time improve the occupant experience in buildings while improving EE. The list goes on and on when the benefits of IT-enabled building solutions are considered. These innovations in building technologies hold the promise of EE, cost savings, tenant satisfaction, and even climate resiliency. Navigant Research will be watching the events that unfold at COP21 and tracking developments on even broader commitments to intelligent buildings and EE for tackling climate change.

 

California Incentive Program: Remaining Challenges for Energy Storage

— October 23, 2015

California’s Self-Generation Incentive Program (SGIP) has significantly advanced the state’s distributed energy storage market and has also highlighted the remaining challenges facing the industry. The program provides incentives for customers to install qualifying technologies including: small wind, waste-to-energy, generator sets and microturbines, fuel cells, and energy storage systems. SGIP has made California’s burgeoning energy storage industry one of the most advanced in the world. Storage systems currently receive incentives of up to $1.46 per watt, the second highest rate in the program. As a result, 224 storage systems have been deployed through the program, representing just over 11 MW of capacity. Despite this success, the industry still faces many challenges that are evident when analyzing the program’s project data.

Program Backlog

While an impressive number of systems have been deployed through SGIP, many projects have been cancelled, and many others currently sit idly by with little chance of being developed. There are currently 301 systems in the SGIP pipeline that were initiated before the start of 2014. These systems account for $25.1 million of held-up incentives that could otherwise go to more active projects. Given the program’s annual statewide budget of $77.1 million, these languishing projects account for 32% of the available incentives.

One reason for this backlog is the relative ease with which customers can begin working with vendors and reserve incentives through the program. Several companies active in California have employed a strategy of taking as many reservations as possible from prospective customers, regardless of the odds of the companies following through with an installation. While this strategy may improve a company’s market share for pipeline alone, it is detrimental to the overall program goals because it works against the other companies that focus efforts on the appropriate and more reliable customers. A potential fix for the program could include stricter milestones and required reservation timelines. Currently, a proof-of-project milestone is due 90 days after the start of most projects, meaning many systems have been in the pipeline for well over a year since that milestone was passed.

Remaining Challenges

The program’s large pipeline and rate of cancelled storage projects highlight challenges for both the program and the overall storage industry. The average ratio of systems deployed to systems that are eventually cancelled is only around 18% for leading vendors in the program. This results in a significant amount of capital resources for emerging companies that are lost on identifying and working with customers that never install systems. Furthermore, this dynamic highlights challenges with systems integration and installation that are faced by the relatively new industry. Changes in interconnection and installation requirements in different parts of the state—often not discovered until well into the development process—can add substantial costs to a project and significantly alter the overall economics, resulting in cancellations.

The large number of cancelled and delayed projects undoubtedly illustrates that the distributed storage industry as a whole must mature to improve the efficiency of operations and lower costs. Improvements should come naturally to the rapidly growing industry as customers become more educated and as increasing sales volumes lead to more standardization and streamlined processes, perhaps similar to California’s recent experiences with solar PV.

 

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